Wondering about your level of confidence at ER

[aim-high]

How much you need to retire really has nothing to do with how much someone else needs to retire. The person who is 45, married with 2 kids at home, and who wants to spend $100,000 a year for 50 years and who doesn't want to include SS is going to need a very different amount that the 60 year old couple, with no kids at home, who is living happily on $40k a year with a paid for home with each person in the couple able to collect $20k each in SS even if taken at age 62. The first person needs a whole lot larger portfolio than the second person.

I'm the first person and I'm a bit of a worrier. The headlines, potential long-term high inflation, and QE Infinity aren't helping me relax any. I was thinking 40x would be safe, but I'm not so sure now.

I know most of my fears are irrational and not likely to occur. It's more likely that our whole system will collapse than 40x not survive a 40-50 year retirement.

 

[Live And Learn]

I'm the first person and I'm a bit of a worrier. The headlines, potential long-term high inflation, and QE Infinity aren't helping me relax any. I was thinking 40x would be safe, but I'm not so sure now.

I know most of my fears are irrational and not likely to occur. It's more likely that our whole system will collapse than 40x not survive a 40-50 year retirement.

Highlights mine .... if you have 40x spending then you are good to go. Once the BS gets to you enough, or health issues force you, you'll retire and be fine. Why not make the decision YOURS ?

 

[RAE]

To me, there is a level of 'survival' readiness, meaning a person could, by living frugally and being willing to make some trade-offs, provide for the basics and a treat (a little cheap travel?) every now and then if they retired.

Then, there is 'security', which to me is a higher level of confidence than mere survival. For me, this would include a bit more in the way of assets, no debt at all including no mortgage, and a bit more wiggle room in the budget, but not luxury.

Up a little further is a level I consider 'comfort', which does include some luxury but not a crazy level of wealth.

Beyond that, there is a level I consider 'no worries', where a person could indulge a great deal in luxury, would be able to leave a significant estate, and would never have to worry at all about running out of money or making financial compromises.

I suppose this is one way to think about it, but my experience is a little different. I retired in 2010, at age 54.5. I ran the numbers enough to know that I should be able to draw roughly the same monthly income in retirement that I did while working, without taking on too much risk. That was good enough for me. So far, it has worked out just fine. My wife and I have been able to do all the things we enjoy doing and planned to do in retirement (including some travel and spending 2 months in a warmer climate every year). At this point, maintaining good health and fitness is a primary goal, and I really don't worry too much about finances. If you don't have your health, no level of income in retirement is going to make you feel more secure. Also, you can work XX more years in order to reach the "no financial worries" level if it makes you feel better, but remember that you can never get those years back. The freedom to spend my time as I choose to spend it is more important to me than working a few more years to accumulate more $$.

 

[1986pacecar]

As an aside - I did go back and read your initial post to the board where you mentioned your 401(k) not having recovered fully to pre-crash levels and mentioned your company stock plummeting a dozen years ago. I hope that aren't saying that your 401(k) is heavily invested in company stock. If it is, you might want to do some research into the negatives of investing retirement money in company stock.

Not anymore although I did have a good chunk invested in it in the late 90's/early 00's. Our company's stock price soared to $100+/ share then bottomed out at $1.50. A lot of people took a huge hit, myself incuded. It has set me back and I still haven't recovered to pre crash levels in my 401k.
My own fault, I know. I have redirected my investments but they seem kind of puny compared to many posters here. It also doesn't help that my wife has no pension plan through her employer (hospital). Both of my parents retired early but I'm pessimistic that I'll be able to follow their lead.
I'm not knocking this site, although it may seem so, I just think it's skewed to higher income individuals.

 

[MichaelB]

Not anymore although I did have a good chunk invested in it in the late 90's/early 00's. Our company's stock price soared to $100+/ share then bottomed out at $1.50. A lot of people took a huge hit, myself incuded. It has set me back and I still haven't recovered to pre crash levels in my 401k.
My own fault, I know. I have redirected my investments but they seem kind of puny compared to many posters here. It also doesn't help that my wife has no pension plan through her employer (hospital). Both of my parents retired early but I'm pessimistic that I'll be able to follow their lead.
I'm not knocking this site, although it may seem so, I just think it's skewed to higher income individuals.

I think you'll find much more financial diversity amongst the community. Here's a current thread that shows a great deal of thrift http://www.early-retirement.org/forums/f28/grocery-money-food-only-69269.html

It's never too late to start the journey.

 

[seraphim]

Pace car

Define 'higher income'.

My wife and I had slightly higher than median incomes. When I was on the military she didn't work. We started early with IRAs, later had pension plans to contribute, choosing jobs with a degree of security rather than high income, took advantage of tax deferred options when they came along (403b and 457), lived frugally. Our pensions are not fantastic, but we could survive on them. Only debt is a pickup truck (0% interest rate) we splurged on at retirement, to haul our camper. We managed to accrue $1M in investments; which covers our entertainment and assisting the kid get his act together lol. But we retired early, and - to answer the OPs query - with a large degree of confidence. We spent the first couple of months of retirement living as we wished, while tracking expenses. We tend to spend $500 to $1000 a month over our pension every month; that's easily covered by the $20k annual withdrawal I had planned. We spend about $400 - $500 a month eating in restaurants and spend about a week traveling each month, so we could drastically trim our expenses. Firecalc shows 100% success rate, with the portfolio growing to varying degrees over 40 years. So I guess we're about as confident as possible, realizing that nothing is ever guaranteed.

 

[Danmar]

We are in the "no worries" group. This realization came on quite suddenly when I was 53. I had been amassing employee options for many years but never really thought of retirement. Then in the early 2000's our stock doubled and suddenly we were sitting on quite a large sum. This realization started me thinking about retirement as the job wasn't as much fun by this point, I think mostly because reaching FI really made the job a pain in the butt. Three years later (2006) I retired but had to manage through the financial crises with most of my options still outstanding. At one time they were all under water! Our retirement could have been very different if the market had not recovered. All cashed out now and lively very well on our pension and dividends.

 

[Meadbh]

I'm not knocking this site, although it may seem so, I just think it's skewed to higher income individuals.

That may be the case, but only to the extent that people who are interested in FIRE tend to work hard to maximize their earning potential while in the workforce. However, there are many forum members who become FIRE on relatively low incomes. What unites FIRE people is LBYM. This leads to a skew towards higher NW.

You've probably heard of "the wealthy barber".

 

[Ready]

I'm in the "still a little worried group". I notice a lot of people on the web site have pensions, often with a COLA. For me, I think this would increase my confidence a bit because at least part of my income would not be subject to the complete unknown of what may happen in the markets over the next 40 years. I have never worked for a company that offered a pension, so I can't relate to what it's like to have it available to me upon retirement, rather than having to rely solely on savings, dividends and capital gains to fund 40 years of living expenses.

 

[jetpack]

Well, when I quit my day job, I was in the "security" mode. Really, just enough for 10 years or so. Since then, I've developed a small business and am firmly in the "comfortable" stage. .. I'm still only 41 and still single, so a lot could (and hopefully will) change.

I will say that most of my comfort comes from not having to go to a day job. I don't have a lavished lifestyle, but when I want to travel or buy something I can.

 

[Theseus]

I just think it's skewed to higher income individuals.

Hardly the case. DW and I are solidly stuck in the 5 figure salary range. Mine is on the high end, but chasing the high pay just did not appeal to me as we like where we live, and enjoy the company of friends and family in the region. We both have non Cola'd pensions, a great blessing - although mine was frozen a few years back, and DWs is changing significantly soon also.

Long story short, Firecalc shows us very soon able to support our current spending and live somewhere in the range of security/comfort as defined in the original post; I believe adaptability is key in making the commitment to ER for folks in that range. If things go south, sure we can give up some 'luxuries'; but to me there is always the other (green) side of the fence, and we might just have to increase spending and live it up to make "ends meet"

 

[F4mandolin]

I sure wasn't a high earner. Last couple of years at work I was at $63k, wife around $15k. Took a bit of a risk to retire in 2011 just short of 54. House paid for and almost $800K saved with a pension (and just started annuity supplement...between the two about $1700 a month total) that pays for about 70% of our expenses. If something really bad happened we might be in a little trouble.....but we planned on living at around the same expenses as we did while working (done) and at 56 things are going better than expected with the run-up in the market.

 

[wingfooted]

We all go into this journey of ER with our calculations, withdrawal rates and monte carlo simulations (FIRECALC) with comments along the lines '98% chance of success', ect.

In doing so we seem to miss the point that the most likely outcome is that we will be much better off than the simulations indicate, i.e. the 50% median value of outcomes supports a radically higher spend rate than the 2% failure case. And that we could be leaving behind a much higher estate upon 'check out' than what we anticipate.

 

[aim-high]

I'm in the "still a little worried group". I notice a lot of people on the web site have pensions, often with a COLA. For me, I think this would increase my confidence a bit because at least part of my income would not be subject to the complete unknown of what may happen in the markets over the next 40 years. I have never worked for a company that offered a pension, so I can't relate to what it's like to have it available to me upon retirement, rather than having to rely solely on savings, dividends and capital gains to fund 40 years of living expenses.

I'm in the same boat re: no pension. Thinking of retiring before 50 and worried about making a 40x portfolio last that long . . .

Then I got to thinking. If the market is so bad that a properly diversified, indexed, portfolio won't survive a 2.5% withdrawal rate, then there is no way those pensions with COLA will survive either. We would all be in a mess.

 

[REWahoo]

We all go into this journey of ER with our calculations, withdrawal rates and monte carlo simulations (FIRECALC)...

Although the point of your post is certainly valid, I think it needs to be noted that FIRECalc isn't a Monte Carlo based calculator. While FIRECalc does provide a Monte Carlo option, the core design of the calculator looks at actual history, not random returns.

 

[NW-Bound]

We all go into this journey of ER with our calculations, withdrawal rates and monte carlo simulations (FIRECALC) with comments along the lines '98% chance of success', ect.

In doing so we seem to miss the point that the most likely outcome is that we will be much better off than the simulations indicate, i.e. the 50% median value of outcomes supports a radically higher spend rate than the 2% failure case. And that we could be leaving behind a much higher estate upon 'check out' than what we anticipate.

Ah, but for scroogy people like myself who is used to LBYM and saving, there's a certain pleasure in seeing his stash grow.

Just now, I figure that if I delay SS until 70, by that time I am probably too old and tired to spend much and probably can live fine on that. So, if I just invest to match the inflation, then withdraw from the stash to deplete it between now and then, I can spend more than 2x what my WR is now. That would mean 1st class seats, new vehicles every year, bigger homes.

Can I do it? Hell no! I like to see the stash grow, even when I am living off it. That's what scroogy people do.

 

[CoolChange]

...
That's what scroogy people do.

I've been called scroogy before, for different reasons (mostly in jest...I think/thought).

Anyway, maybe this explains my OMY syndrome a bit: Even though the calculators say I am good to go now; and, I have no huge desire for a more lavish lifestyle at the moment (in fact, simpler would be much nicer for a while)...I do like to watch the stash grow.

 

[NW-Bound]

We have many cohorts here, I think.

PS. I tend to be more generous to other people than to myself. I have been trying to spend more on myself, but I do not need much.

 

[Ready]

We have been watching the stash grow our entire lives. It's not an easy change to make, even though at some point it no longer is necessary to do so. Figuring out at what point in our lives that becomes true is everyone's challenge here.

 

[robnplunder]

Recently found out about FIRECalc. Before that, I had my own spreadsheet with all kind of formulas.

I've been running through various scenarios (spending 90k-120k, retiring now vs 5 years later, ...). To enjoy a finance stress free retirement and live up (travel being the main one), I need to work a few more years. But if I can't work any more due to continuing stress, I will retire and live as I do now.

 

[NW-Bound]

Speaking of cheap, I remember of what I read from Andrew Tobias. He wrote that cheap only applies to how you treat others. What you spend on yourself does not matter.

Not spending a lot of money on your clothes or your toys is not cheap. Cheap is not giving a waitress the tip she deserves, not pitching in enough to cover your portion when you are out to lunch with coworkers and have a single check, etc...


PS. Similarly, Tobias wrote that going out to expensive dinners, or giving a generous tip would not be waste. The money that you spend is now enjoyed by others.

 

[imoldernu]

In re- reading the thread, and going to the four stages described:
Survival
Security
Comfort
No Worries
.........
I see a cose correlation to my own three stages:
Austerity
Nominal
Optimum
and now... Phase 2

Also... from a different Era as Midpack mentioned (24 year chart)...
At the time we retired, in 1989, there was no Firecalc... and not much in the way of financial management, at least for people like us with limited assets.
I sense the same kind of worry that we had at the time, about making it. It happened, but not along a smooth path. FWIW, if you're still on the ER site, Act2, try this:
http://www.early-retirement.org/forums/f27/sharing-23-years-of-frugal-retirement-62251.html

 

[Dog]

Interesting post. DH and I are still working. I plan to exit in the next 5 - 13 months (if I can avoid OMY syndrome). DH will retire in June 2016 with FERS. We won't have any debts and our basic living expenses will be covered by SS and his pension. All the extras will be covered by his 401k and my IRA. All calculators show that we should be very comfortable. We have always lived below our means and I'm like many here - a chronic worrier, so I could never put us in the "no worries" category. My biggest hurdle will be not saving/adding to our nest egg and actually withdrawing from it. DH is afraid that I will go into austerity mode. He is looking to ramp up our lifestyle a bit.

 

[wingfooted]

It is the most likely outcome that the majorityof the people on this site during the next twenty or so years will be posting - instead of to the FIRE and Money forum - to topics labeled 'estate tax' and 'charitable bequests'.

 

[aim-high]

It is the most likely outcome that the majorityof the people on this site during the next twenty or so year swill be posting - instead of to the FIRE and Money forum - to topics labeled 'estate tax' and 'charitable bequests'.

+1 It beats the alternative!

My plan is to divest along the way with a goal of maintaining 40x in my 50s, 30x in my 60s, 20x in my 70s, 15x in my 80s, and 10x in my 90s+.